Income Tax Appellate Tribunal - Delhi
Dedicated Freight Corridor ... vs Assessee on 29 October, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'B', NEW DELHI
BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER
&
SHRI H.S. SIDHU, JUDICIAL MEMBER
ITA No. 282/Del/2013
Assessment Year: 2009-10
Dedicated Freight Corridor vs. DCIT,
Corporation of India Ltd. Central Circle-13,
th
5 Floor, Metro Station Bldg. New Delhi.
Complex, Pragati Maidan,
New Delhi.
AACCD4768M
(Appellant) (Respondent)
Appellant by : Sh. Surender Kumar, CA
Respondent by : Smt. Parwinder Kaur , Sr. DR
ORDER
PER H.S. SIDHU, J.M.
The assessee has filed the present appeal against the impugned order dated 05.11.2012 passed by the Commissioner of Income Tax (Appeals)-XIII, New Delhi for A.Y. 2009-10.
2. The facts of the case are that the appellant company is a company wholly owned by Govt. of India under the control of Ministry of Railways. The main object of the company is to undertake planning and development, mobilization of financial resources and construction, maintenance and operation of the dedicated freight corridors. During the year under consideration appellant has received interest income of Rs. 7,03,14,282/- against this income the appellant has claimed an expenditure of Rs. 22,01,478/- as expenditure incurred for earning interest income. The appellant could not established the nexus between the earning of interest income and expenditure so claimed on estimation basis. Therefore, the same was disallowed. The appellant has also ITA No. 282/D/2013 - Dedicated Freight Corridor Corporation of India Ltd. 2 received service charges of Rs. 36,66,291/- against this income the appellant has claimed expenditure of Rs. 8,11,987/- for earning the said income. However, appellant has failed to establish nexus between the earning of said income and expenditure. Therefore, the claim of the appellant was disallowed. The appellant has also shown other income of Rs. 6,02,405/-. However, as per the record the other income actually works out at Rs. 9,87,491/-, thus, there was a difference of Rs. 3,85,086/-. The appellant failed to explain the difference, therefore, the same was treated as income of the appellant. The AO completed the assessment u/s 143(3) of the Income Tax Act, 1961 dated 12/09/2011. Aggrieved by the assessment order the assessee filed an appeal before the ld. First Appellate Authority who vide impugned order dated 05/11/2012 partly allowed the appeal filed by the assessee.
3. Now the assessee is aggrieved with the impugned order dated 05/11/2012 filed the present appeal.
4. At the time of hearing ld. Counsel for the assessee stated that during the year under appeal the assessee had disclosed income amounting to Rs. 9,24,16,178/- and claimed expenses amounting to Rs. 2,08,46,665/- which has been disallowed by the AO but the ld. First Appellate Authority on the appeal filed by the assessee given the relief by deleting the addition of Rs. 3,85,086/- made on account of difference in account of other income.
4.1 He further stated that during the course of assessment proceeding the assessee was asked by the AO to justify the expenditure in dispute and in response to the same the assessee company stated that charges claimed by the company pertained to salary and other expenses which are attributable to the interest income because office staff is deputed for activities such as dealing in bank and only a miniscule proportion of the ITA No. 282/D/2013 - Dedicated Freight Corridor Corporation of India Ltd. 3 expenses are booked against the same, the balance being capitalized. But the AO did not accept the explanation given by the assessee and as rejected the contention of the assessee by disallowing the entire claim of expenditure in dispute. He further stated that according to the provision of section 57(iii) of the Act clearly stipulates that the expenditure must be laid out or expand fully and exclusively for the purpose of making and earning of the income. He also stated that the assessee company earned interest income of Rs. 70,31,282/- by prudently monitoring and managing its funds utilization i.e. identifying idle funds at various projects from time to time and investing the same funds for short duration thus, maximizing returns. This exercise of identifying idle funds is time consuming, needs day to day involvement of assessee company's staff and also requires allocation of resources and infrastructure thereto. The cost attributable to such involvement was worked out and was claimed as deductible against interest income on estimated basis and is allowable.
5. As regard to the disallowance of expenses of Rs. 8,11,987/- on account of service charges income of Rs. 36,66,291/-. The ld. Counsel for the assessee stated that almost same arguments are applicable on this issue also and the assessee has also estimated the expenses of Rs. 8,11,987/-. In support of his contention he has also filed a copy of judgment of the Hon'ble High Court of Gujarat in the case of Rajasthan Club Limited vs. Commissioner of Income Tax (1995) 211 ITR 379 (Guj.). He stated that the issue in dispute has already been decided by the Hon'ble Gujarat High Court in favour of the assessee and he requested that appeal filed by the assessee may be allowed.
6. On the contrary ld. DR relied on the order passed by the Revenue Authorities specially the impugned order and stated that during the course of assessment proceeding as well as before the ld. First Appellate Authority assessee has not furnished any detail and explanation for ITA No. 282/D/2013 - Dedicated Freight Corridor Corporation of India Ltd. 4 substantiate its claim. Therefore, the ld. First Appellate Authority has rightly passed the impugned order.
7. We have heard the both parties and perused the orders passed by the Revenue Authorities along with the small paper book filed by the ld. Counsel for the assessee containing pages 1 to 105 in which he had attached (i) copy of written submissions dated 05/11/2012, (ii) copy of annual reports/accounts of the appellant company for A.Y. 2009-10, (iii) copy of memorandum and articles of association of the appellant company, (iv) details of interest received from bank by the appellant company during the A.Y. 2009-10, (v) details of expenditure claimed by the appellant company in respect of earning interest income, (vi) details of the service charges received by the appellant company, (vii) details of expenditure attributable to the earning of services charges computed,
(viii) details of other income earned by the appellant company during the year under appeal.
8. We are of the considered view that the assessee company is a limited company wholly owned by the Government of India under the administrative control of Ministry of Railways and was incorporated on 30th October, 2006 the main object of the company is to undertake planning and development, mobilization of financial resources and construction, maintenance and operation of the Dedicated Freight Corridors lines covering approximately 3328 route kilometers on the Eastern and Western Corridors. The Corporation is basically associated with Delhi Metro Rail Corporation and has provided office space to the Corporation. During the year under appeal the Corporation had income from the following items which was disclosed in the head "Income from Other Sources":
S.No. Particulars Amount (in Rs.)
1. Interest on bank Deposits 7,03,14,282
2. Rent received 1,78,33,200
ITA No. 282/D/2013 - Dedicated Freight Corridor Corporation of India Ltd. 5
3. Service Charges Received 36,66,291
4. Other Income 6,02,405
Total 9,24,16,178
8.1 Against the above gross income of Rs. 9,24,16,178/- the Appellant
had claimed expenses under the following heads:
S.No. Particulars Amount (in Rs.)
1. Expenses incurred in earning interest income 22,01,478
2. Rent Paid 1,78,33,200
3. Expenses incurred in earning service charges 8,11,987
Total 2,08,46,665
8.2 The resultant net taxable income came to Rs. 7,15,69,510/- on
which tax was duly paid.
9. During the course of assessment proceedings vide order sheet entry dated 30.08.2011, the appellant company was asked to justify the expenditure of Rs. 22,01,478/- incurred by it to earn interest income when the interest income represented only interest on FDR in the bank. In response to the same, the appellant company stated that the charges claimed by it pertain to the salary and other expenses which are attributable to the interest income because office staff is deputed for activities such as dealing in bank and only a miniscule proportion of the expenses are booked against the same, the balance being capitalized.
10. The ld. Assessing Officer, being not satisfied with the reply submitted by the appellant company, issued specific show cause notice dated 01.09.2011 wherein the appellant company was asked to explain the reasons for claiming expenditure against income from deposit in bank in the shape of FDR. In response to the said show cause notice, a reply was filed before the ld. Assessing Officer on 15.09.2011 wherein vide Annexure III the justification of expenditure claimed against the interest income was duly furnished.
11. However, the ld. AO has negated the reply submitted by the appellant company and disallowed the entire claim of expenditures with the following remarks:
ITA No. 282/D/2013 - Dedicated Freight Corridor Corporation of India Ltd. 6"As per scheme of taxation income has been divided under four broad heads of income.
4. The assessee has declared income from interest on account of deposits with the bank. The assessee had surplus money which he deposited in the bank and earned interest on this deposit. As per section 14 of the Act, income is to be computed under the specific five heads. Further, these five heads are in a sense exclusive to one another and income which falls within one head cannot be assigned to or taxed under another head - Karanpura Development Company Limited vs. CIT [(1962) 44 ITR 362 (SC)]. Further, as per section 56 of the Act, income from deposit in bank falls under the residuary head that is 'Income from other Sources'. Thus, as per the Act income has to be declared under specific heads and thereafter, there is specific scheme for claiming expenditure under each head of income. In addition to these Act clearly provides that expenditure of one head cannot be claimed against the other head. It is in the background of these specific provision of the Act that the claim of the assessee that the salary paid to the staff and other administrative expenditure at the rate 2.5% be adjusted against the income from bank interest.
5. The assessee is not disputing the fact that interest on bank deposit fall under the head 'Income from Other Sources'. What the assessee is disputed is that the corporation is entitled to claim expenditure at the rate 2.5% against the bank interest. In this regard provisions of the Act are very clear. With respect to income on bank interest only such expenditure are admissible which are directly attributable to earning of interest. Section 57(iii), clearly stipulates that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income - CIT vs. Rajendra Prasad Moody/Raghunandan Prasad Moody [(1978) 115 ITR 519 (SC)]. Further, the section provide ITA No. 282/D/2013 - Dedicated Freight Corridor Corporation of India Ltd. 7 that the expenditure in question must be incurred in the year in which the income forming the basis of assessment arose - CIT vs. Basant Rai Takhat Singh [1933] 1 ITR 197 (SC).
Thus, the section clearly stipulates that only those epxendiutre against bank interest are admissible which are laid out and expanded for earning bank interest. The plea of the assessee that out of the total expenditure of the corporation including salary, wages and all other administrative expenses at the rate 2.5% be allowed as deduction against bank interest is apparently incorrect and does not stands to reasons. The claim of the assessee is erroneous and contrary to the provisions of the Act.
Keeping in view the explicit provision of the Act and the judicial rulings in this regard claim of the assessee for deduction of Rs. 22,01,478/- is disallowed and addition of Rs. 22,01,478/- is hereby made."
12. On appeal ld. First Appellate Authority concluded his finding in para no. 3 at page 8 & 9 which is reproduced as under:
6.3 Decision "I have considered the submission of the appellant and observation of the Assessing Officer. It is seen during the year the appellant has earned interest income of Rs.
7,03,14,282/- out of the surplus funds put in the bank. Against these interest income the appellant has claimed an expenditure of Rs. 22,01,478/- for earning the interest income. This claim of the appellant was disallowed by the AO on the ground that appellant has failed to establish any nexus between the earning of interest income and expenditure so claimed. The appellant has incurred an expenditure of Rs. 17,51,41,182/- during the year. Out of that the appellant claims that expenditure to the tune of 2.5% of interest income be allowed as salary paid to staff and other administrative expenditure for earning interest income. This claim of the appellant is based on estimations and no nexus has been proved with the expenditure incurred and earning of interest income. The appellant company is engaged in the development and maintenance of dedicated ITA No. 282/D/2013 - Dedicated Freight Corridor Corporation of India Ltd. 8 freight corridor and it has received funds from ministry of railways as share capital, such money is to be utilized for development of dedicated freight corridors, however, till the work actually starts the funds so received are kept in bank as per the guidelines issued by department of public enterprise. The pre-operative expenditure incurred by the appellant has to be capitalized till the business of dedicated freight corridors actually commences. Therefore, the entire expenditure of Rs. 17,51,41,182/- has to be capitalized and no set off of such expenditure can be claimed against the interest income received from bank deposits. The claim of the appellant that 2.5% of the interest income earned has to be apportioned towards salary of the staff and administrative expenditure for earning interest income is not based on any provisions of the Act. There is no such provision in section 57b of the IT Act. The salary and administrative expenditure incurred by the appellant during the year has to be capitalized and same cannot be set off against the interest income received. The section 57 clearly stipulates that only those expenditure against bank interest are admissible which are laid out and expanded for earning bank interest. As per the IT Act income has to be declared under specific heads and there is a specific scheme for claiming expenditure under each head of income. The Act clearly provides that expenditure of one head cannot be claimed against the income of other head. The expenditure incurred on salaries and administration is pre-operative business expenditure and same has to be capitalized till the business actually commences. It cannot be claimed against the interest income received from bank deposits. Therefore, the claim of the appellant is erroneous and contrary to the provisions of Income Tax Act and does not stand to the reasons. Hence, the disallowance made by the AO was justified and same is confirmed."
13. Similarly as regard to the disallowance of expenses of Rs. 8,11,987/- against the income received from service charges of Rs. 36,66,291/-. On this issue the AO has observed as under:
Observation of the Assessing Officer "During the year, the appellant has received service charges receipts of Rs. 36,66,291/-. Against these receipts of income, the appellant has claimed expenditure of Rs.ITA No. 282/D/2013 - Dedicated Freight Corridor Corporation of India Ltd. 9
8,11,987/-. During the course of assessment proceedings, the appellant claimed that it has incurred number of expenditure in the project which have been capitalized and out of this expenditure, @ 2.5% have been claimed as expenditure incurred for earning income. However, the Assessing Officer held that this expenditure is not incurred wholly and exclusively for business purposes and for earning of service charges receipts. Therefore, the same was disallowed."
14. On appeal the ld. First Appellate Authority has concluded the said issue at para no. 7.3 page 12 & 13 which is reproduced as under:
7.3 Decision "I have considered the submission of the appellant and observation of the Assessing Officer. It is seen that during the year, the appellant has received income under the head "service charges receipts"of Rs. 36,66,291/-. Against this income, the appellant has claimed expenditure of Rs.
8,11,987/- on the ground that it has incurred number of expenditures in the project which have been capitalized and out of such expenditure, expenditure, @ 2.5% have been claimed as expenditure incurred for earning income. It is seen that expenditure incurred by the appellant is based on estimation and there is no nexus between the earning of service charges receipts and expenditure claimed. The appellant company is engaged in the development and maintenance of dedicated freight corridor and it has received funds from ministry of railways as share capital, such money is to be utilized for development of dedicated freight corridors, however, the pre-operative expenditure incurred by the appellant has to be capitalized till the business of dedicated freight corridors actually commences. Therefore, the entire expenditure of Rs. 17,51,41,182/- has to be capitalized and no set off of such expenditure can be claimed against the receipts received from service charges. The claim of the appellant that 2.5% of the expenditure has to be apportioned towards salary of the staff and administrative expenditure for earning income is not based on any provisions of the Act. There is no such provision in section 37 of the IT Act. The salary and administrative expenditure incurred by the appellant during the year has to be capitalized and same cannot be set off against the service ITA No. 282/D/2013 - Dedicated Freight Corridor Corporation of India Ltd. 10 charges income received. The section 37 clearly stipulates that only those expenditures is to be allowed which have been incurred wholly and exclusively incurred for the business purposes. The business of the appellant company has not commenced, therefore, expenditure incurred at pre- operative stage has to be capitalized and cannot be claimed u/s 37 of the IT Act. Hence, the claim of the appellant disallowed by the Assessing Officer is confirmed."
15. We have thoroughly gone through the averment made by the assessee with the support of documentary evidence as well as in the shape of written argument given before the AO as well as before the ld. First Appellate Authority. We are of the considered view that there is a force in the argument advanced by the ld. Counsel for the assessee which is supported by the documentary evidence as mentioned above. The Hon'ble Gujarat High Court in the case of Rajpath Club Limited vs. Commissioner of Income Tax (1995) 211 ITR 379 (Guj.) has held that expenditure incurred by the assessee which is wholly and exclusively for the purpose of earning interest income was required to be deducted while computing income from other sources. No doubt the assessee has claimed the expenditures in dispute on estimation basis, but the same has not been fully substantiated by the assessee before authorities below. But it does not mean that assessee is not entitled for any expenditure for the income earned by the assessee. It is not logically acceptable that if any person earned any income and did not incur any expenditure for earning the same. In the present case, assessee has deputing their staff who used their skills mentally as well as physically to earn the income in dispute. They managed its fund for better utilization and also identify the funds from time to time for their better investment to maximizing the assessee's return. This exercise of identifying the funds is time consuming needs day to day involvement of assessee company staff and also requires allocation of resources and infrastructure thereto. The cost attributable to such involvement and was claimed as deductible against ITA No. 282/D/2013 - Dedicated Freight Corridor Corporation of India Ltd. 11 interest income on estimation basis. Similarly the other disallowances of Rs. 8,11,987/- taxing on the service charges income of Rs. 36,66,291/- on gross basis. The assessee has also filed details of services charges received before the authorities below expenditure attributed to the earning of service charges have been computed/allocated the assessee has also filed detail before the authority. We are of the view that the service charges are brought to tax under the head "Income from Other Sources". The amount of expenditure allocated on a consistent and reasonable basis to the earning of service charges being directly related thereto is clearly allowable. But in the present case the assessee has itself estimated the expenditure in dispute for which the assessee had not filed sufficient evidence for substantiating its claim before the Revenue Authority. Therefore, keeping in view of the facts and circumstances of the present case and as discussed above in the interest of justice. We are of the view that assessee is entitled for some expenditure on the incomes in dispute. It would be fair and reasonable under the facts and circumstances of the present case to issue direction to the AO to allow 1% of expenses on account of interest income of Rs. 70314282/- and on service charges income of Rs. 36,66,291/- on gross basis. With these observations the appeal filed by the assessee is partly allowed.
16. In the result, the appeal filed by the assessee is partly allowed.
The order is pronounced in the open court on 29/10/2014 Sd/- Sd/-
(S.V.MEHROTRA) (H.S. SIDHU)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 29/10/2014
*Kavita, P.S.
ITA No. 282/D/2013 - Dedicated Freight Corridor Corporation of India Ltd. 12
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
TRUE COPY
By Order,
ASSISTANT REGISTRAR